Business Day

Disasters sap Munich Re’s profit and demand for coverage weakens

- Oliver Suess

Munich Re, the world’s biggest reinsurer, reported a bigger-than-expected drop in fourthquar­ter earnings as claims from natural disasters rose while prices continue to fall.

Net income declined to about €500m from about €700m a year earlier, according to a statement on Tuesday. That missed the €630m estimate of nine analysts.

The company proposed a dividend of €8.60 a share for 2016, after paying out €8.25 the year before.

Reinsurers, which help primary insurers shoulder risks, are returning cash to shareholde­rs as years of low claims from natural catastroph­es reduce demand for coverage. Renewed premium volume declined 4.9% and prices fell about 0.5% in January, when Munich Re renews about half of its nonlife reinsuranc­e business.

That was even after Hurricane Matthew, which battered the US East Coast in October after devastatin­g parts of the Caribbean, pushed up claims during the fourth quarter.

“Market conditions for the renewals were once again challengin­g, even though the trend towards price reductions continued to slow,” said property and casualty reinsuranc­e unit head Torsten Jeworrek.

“We withdrew from business that no longer met profit expectatio­ns — for instance, in China — and built up or expanded profitable business, either through acquisitio­ns or by strengthen­ing existing client relationsh­ips.”

Munich Re paid €232m for Hurricane Matthew and €251m for an earthquake in New Zealand in the fourth quarter. As a result, the combined ratio at the property and casualty reinsuranc­e unit, its most important in terms of earnings, worsened to 101.9% in the quarter from 78.6% a year ago. The ratio measures premium income against claims and costs.

Net income at the reinsuranc­e unit decreased to about €400m in the fourth quarter from €1.4bn a year earlier.

Munich Re shares had fallen 2.2% by 9.41am in Frankfurt trading, bringing losses in 2017 to 4.3%. Hannover Re, the thirdbigge­st reinsurer, rose 0.7% after reporting higher full-year profit.

Hannover Re’s full-year net income rose to €1.17bn from €1.15bn in 2015, helped by “a further improvemen­t in the underwriti­ng result in property and casualty reinsuranc­e”, the German-based company said on Tuesday. It did not give fourth-quarter earnings.

Munich Re’s full-year profit declined about 16% to €2.6bn, missing the €2.7bn estimate of 20 analysts.

Munich Re said in November that full-year 2016 earnings might “substantia­lly” exceed a reduced target of €2.3bn.

The company, which plans to report more detailed results on March 15, said in June that fullyear earnings would include a €1bn restructur­ing plan for its Ergo primary insurance unit. As part of the plan, the business would cut about 13% of its workforce and modernise its computer systems.

Ergo reported a full-year loss of about €40m after a shortfall of €200m a year earlier. The unit, led by management board member Markus Riess, “is making good progress” on its restructur­ing and staff reductions, the company said.

“From now on I’m confident that we will see positive figures,” Munich Re chief financial officer Joerg Schneider told Bloomberg TV, adding that the company paid about €250m for the unit’s revamp in 2016.

Munich Re CEO Nikolaus von Bomhard will hand over the CEO post to management board member Joachim Wenning in April.

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Joerg Schneider

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